The major economic indicators disappointed in the first quarter, and will lead to a weaker than expected performance for the country’s economy this year, economists at Fannie Mae said in a new report.
Fannie Mae’s Economic & Strategic Research Group unveiled its May 2016 Economic Outlook, and the report suggests that the economy should improve throughout the rest of the year, but that won’t be enough to counteract the weakness seen in the first quarter.
According to Fannie Mae’s report, its Economic & Strategic Research Group is lowering its full-year forecast for economic growth from 1.9% to 1.7%, which is a far cry from earlier this year when Fannie Mae’s economists expected an economic growth rate of 2.2% in 2016.
The reason for the rollback? The disappointing first quarter, when economic growth came in at 0.5%.
But there’s some light at the end of the tunnel, but not quite enough salvage 2016, Fannie’s economists say.
“The ESR Group expects economic growth to bounce back as we move through 2016 amid improved financial conditions, with consumer spending remaining an engine for growth and the housing and government sectors making positive contributions,” Fannie Mae’s economists write in their report. “However, it will not be sufficient enough to overcome the damage done during the first quarter of the year.”
Fannie Mae’s chief economist, Doug Duncan, said that were some positive signs towards the end of the first quarter, leading to some optimism for the rest of the year.
“Consumers and businesses showed caution at the end of the first quarter. Job creation slowed in April and participation in the labor force gave back some of the recent gains,” Duncan said.
“Nevertheless, the uptick in both hours worked and average hourly earnings should boost labor income and help support consumer spending in the current quarter,” Duncan added.
“In addition, we saw a healthy rebound in April auto sales and greater demand for consumer loans,” Duncan said. While the Fed appears to be less worried about financial turmoil abroad, the vote on whether the U.K. will leave the European Union, scheduled to occur about a week after the June Federal Open Market Committee meeting, should keep the Fed from raising interest rates next month.”
And with continually low interest rates comes improvement in housing, Duncan said.
“Home sales are expected to pick up heading into the spring season amid the backdrop of declining mortgage rates, rising pending home sales and purchase mortgage applications, and continued easing of lending standards on residential mortgage loans,” Duncan said.
“Meanwhile, the homeownership rate showed signs of stabilizing during the first quarter of this year, as the relatively high homeownership rates among Baby Boomers have helped offset low homeownership rates among Millennials, many of whom remain on the sidelines due to ongoing affordability issues.”
But positive housing trends won’t be enough to save 2016 from a weak first quarter.
